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The NZ Super Fund, eyeing Auckland's proposed light rail network, wants a nationally significant infrastructure regime to 'level the playing field' for mobile international capital

The NZ Super Fund, eyeing Auckland's proposed light rail network, wants a nationally significant infrastructure regime to 'level the playing field' for mobile international capital

By Gareth Vaughan

The New Zealand Superannuation Fund, which has put its hand up to design, build and operate Auckland’s light rail network with a Canadian partner, wants the Government to introduce a nationally significant infrastructure regime offering tax concessions to "level the playing field" for mobile international capital, CEO Matt Whineray says.

In a submission to the Tax Working Group, the Super Fund says such a regime should offer a tax rate of half or less the current 28% corporate tax rate for a meaningful part of the life of the asset. Additionally there should be no further tax impost on profit distribution to either domestic or foreign investors, and full deductibility of third party non-recourse funding should be included.

Should a capital gains tax be introduced, the Super Fund says nationally significant infrastructure should be eligible for an exemption on exit. Additionally the Super Fund wants the ability to fast track required regulatory approvals such as Resource Management Act approvals, and for foreign skilled labour to be allowed to be used to help with rapid construction.

"Other jurisdictions, most notably Australia given its proximity to New Zealand and therefore competition for capital and resources, have dedicated tax regimes to support and incentivise nationally significant infrastructure projects. These jurisdictions provide long-term certainty for investors and tax settings to encourage investors, which ensure that the tax environment does not act as a barrier to investment," the Super Fund says in its submission.

In a Double Shot interview Whineray told that rather than make these ideas up itself, the Super Fund has learnt from other countries.

"And what we're really saying with this is we as a country have a significant amount of infrastructure build in front of us, that has got to be paid for somehow, and it can't all be done necessarily by central and local government."

"We're not different from other countries around the world - you look at Australia, the US, various others. So in a sense we're competing with those jurisdictions for capital to come in and build that infrastructure for us and provide the efficiency benefits that infrastructure brings," says Whineray.

 "If you look at those other jurisdictions they have provided for these types of things. And really they're focused not on brownfields stuff that exists, so not on giving someone a concession to own something that someone else has already built, this is about large, nationally significant Greenfield [projects]. You're bringing new money in, you're bringing new technology in, and you're building new stuff. Not just buying some old stuff," Whineray says.

"This is about saying 'can we level the playing field for that capital' because this capital is very mobile. It will go to where it gets some certainty. And that's a big issue, having some clarity for the life of what are very long projects. Because one of the biggest issues for infrastructure investors is finding that the rules of the game have changed after you've started playing it. You go in there you build this thing, you've got, it might be a 30 year life, it might be a 50 year life, it might be a 100 year life, and suddenly something changes and someone says 'oh no we've got new tax provisions for this type of thing,' and the whole value changes."

"Or there's a regulatory change, and we've seen that in developed market jurisdictions around the world - like Australia and Norway. These are developed countries that you would say are pretty low risk, low politically risk countries," Whineray adds.

"So what this is trying to do is say 'hey let's try and present ourselves in New Zealand in a light that's comparable to these other places because we want to attract skilled and deep pocketed investors to come and help us solve our infrastructure problem'." 

'A public investment approach'

In May the Super Fund made an unsolicited approach to the Government on the proposed Auckland light rail project. The Super Fund has partnered with Canada's Caisse de depot et placement du Quebec (CDPQ), which has US$238 billion under management and is developing and building the Montreal light rail network. Transport Minister Phil Twyford estimates the Auckland project will cost about $6 billion, making it the biggest transport project in New Zealand history.

Currently Whineray says the New Zealand Transport Agency (NZTA) is running a process to decide which form of procurement it will choose. The Super Fund has proposed what Whineray calls a public investment, as opposed to a public-private partnership (PPP).

"That's where we would partner with whichever the government body is, it could be NZTA, it could be another ministry, and really develop the project. We would provide the equity - us plus CDPQ, we'd bring in technology and new ways of doing the construction to assist it, and we would own it over the really long-term. So it's a different model from the traditional PPP," says Whineray.

This public investment concept is competing against a PPP approach, he says.

"NZTA at the moment, rolling through to Christmas, is trying to decide which of these procurement roads it goes down. We're participating in that process, we'll see what the outcome is," Whineray says.

If the Super Fund and CDPQ are ultimately successful, Whineray says they would be long-term owners, looking at the life of the asset.

"That [the Montreal light rail network], is a 100 year asset. They [CDPQ] expect to own it through that. We think in that same way," says Whineray.

In terms of the return the Super Fund would expect to earn from designing, building and operating the light rail network, Whineray says it's a long way from determining this.

"We're still in this decision of which procurement model we go down before we get into 'well let's really define what the project looks like.' But for us the return needs to compensate us for the risk that we take. So we look at what will we sell to fund this, we'll sell some combination of equities and bonds. So what do we think we'll earn on those, and is there any concentration as a result of investing more in New Zealand that we think we ought to be compensated for? So we're still a long way from picking a number and saying 'this is what it is.' We've got a whole discussion to go with the Crown on how to do that."

'It's an anachronism to have us be taxed'

In another submission to the Tax Working Group the Super Fund argues that ideally it should be tax exempt, pointing out it's the only sovereign wealth fund taxed in its home jurisdiction. (This is an issue discussed with Whineray's predecessor Adrian Orr in 2015).

Whineray says the Super Fund will be meeting with the Tax Working Group, which is chaired by its political father Michael Cullen, to discuss its submissions next month.

"We think it's an anachronism to have us be taxed. And it really highlights the issue of it when a government stops contributions. Because what that leads to is continuous withdrawals from the fund, and that has not ever really been the concept of the fund. The Fund is a savings fund, it's a buffer fund, it's putting money aside," says Whineray.

"What we experienced over the last nine years is a significant outflow from the fund. That's not saving, that's using it as a withdrawal mechanism."

"When contributions are being made it matters not so much that tax is being paid. However there's really no good reason to have us be taxed. There'll be rationales proposed at the time, but ultimately it's taking money out of one pocket for the government and putting it in the other pocket," Whineray says.

"ACC [the Accident Compensation Commission] doesn't pay tax. [I'm] not really sure what the rationale of that distinction is. I don't think I've ever had anyone explain that to me."

"We're looking forward to having a chat to the Tax Working Group and putting that position, and hopefully we can stop talking about this. I'd love to," Whineray says.

The Super Fund's annual report notes that since its inception, the Government has contributed $15.38 billion while the Fund has paid the Government $6.42 billion in tax. In effect this means 42% of what the Government has contributed to the Fund has been returned in tax.

Government contributions to the Super Fund were suspended by the National Party-led Government between 2009 and 2017. In December last year contributions resumed, with the Super Fund receiving an initial $500 million in its 2018 financial year. Contributions will increase over the next four years, with $1 billion planned for 2019, $1.5 billion in 2020 and $2.2 billion in 2021. 

*This is part 2 of a two part interview. Part one is here.

*This article was first published in our email for paying subscribers. See here for more details and how to subscribe.

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So we bring in 500,000 people and the roads gum up. So we bring in foreign capital and people to build us a light rail system because we can't afford to build it ourselves and don't know how to.

Something doesn't quite add up here.

The system used to work when foreign capital funded a mine and a railway to service it, that paid for itself in 3 years. Here we seem to be saying that the "investment" in the 500,000 people can't ever really pay for itself.

Before the 500000 new people the government was in deficit, now it is in surplus.


It's a cross party problem. Both parties have brought in more people than we can house or transport. National were just as bad as Labour before them.

JimboJones exactly right
Over half the over 3000 who work running Auckland Hospital were born overseas
NZ would not be able to function without immigrants
NZs aging population had to be addressed and it has been by new migrants
The only issue has been the inflation in house prices by Chinese grey money & cheap 1% mortgages from the bank of China or its subordinate entities
It was also wrong that the Key govt allowed foreigners to speculate in the Auckland housing market & repatriate profits tax free.
For myself however I’m out of there I was a immigrant in my own street thanks to the invasion
Yet many still attack the current government when it was 10 years of incompetence by the Key National govt
They destroyed the Auckland lifestyle forever

True. The government and all these enterprises acknowledge looking at the profile of migrants in NZ that the government will never be able to raise enough tax revenue from new migrants to fund such infrastructure growth. Hence they see the need for these concessions.

As for a tax exemption, every business can make the same argument, that the societal benefit is in the wages paid and so taxing the business twice is counter-productive. Isn't the whole purpose of this scheme to provide a buffer? So, while I think National arguably took advantage of the fund to a certain extent, the GFC and Christchurch earthquakes were both perfectly sound reasons for the fund to contribute to the nation.

But not every business is the government's own savings account. Ideally the government shouldn't be dipping into the savings account, one would've thought. It defeats the purpose, which is the point Whinery is making.

Like the fantabulous personalized Aussie Super Scheme which allowed its contributors to lend against their superannuation accounts to fund their RE speculation
It all appeared great until house prices declined
Or Robert Muldoon spendthrift Think Big projects
Governments are the very last people to make the right decisions for capital
The National government couldn’t even fund half of the yearly operating expenditure of my children’s decile 10 school throughout their entire education Foreign fee paying students had to prop up the operating funds shortfall
Beware any government decision spending your taxpayers money because all are utterly incompetent
Except Sir Roger Douglas of course he knew the value of a dollar hence he used his taxpayer funded
free international air travel long after he retired from parliament.

Yes the wise heads in NZ decided to rebuild ChCh on the same EQ prone areas

The unresolved and unmentioned problem, is that the fund really needs cross party support. The fund has been an unexpected success, but it was created without cross party support. This was essentially a Stalinist move on Cullen's part, hence it has a stigma as the "Cullen Fund". How to resolve that fundamental problem?

Okay, "Stalinist", may seem over the top, but "tyranical" doesn't seem to work.

It will never happen because National represents the baby boomers who have no interest in paying a cent towards their own retirement.

Remind me: Did our current Govt spend years sabre-rattling about means-testing Super in opposition and them immediately rule it out when they needed NZF to form a coalition? Or is scrutiny something we're only applying to the National Party these days?

I guess you gotta pick your battles. Better to be in government without some of your policies than out. The problem is that National have to be opposed to the super find no matter how obvious or sensible or successful it is. The concept of the government taxing people and then investing the money is against their core - even though it is working brilliantly.

I guess that's why they were planning on resuming contributions to it - because they were so against it?

"Better to be in government without some of your policies than out."

Is there any difference, a Govt that can't implement it's policies might as well be out.

Cross party support? That's easy just rename it the 'National Fund'.

I don’t quite get the need for this private partnership nonsense. Just pay for the thing out of general taxes, then we will own it and can run it the best way possible. Either that or properly privatise the entire transport network and let private companies compete properly for trips. The PPP concept is just a way for private companies to cream money from government spending (not so bad when it’s the superfund I guess)

There are types of PPPs where the public sector retains full ownership of assets while private players take up a combination of roles involving design, build and financing the project.
Such deals are advisable for projects in NZ as the government may lack skill, expertise and structure to deliver on such construction.
We could borrow the knowledge and expertise from partners like CDPQ in the mix. How much faith do you have in the AC to spend $28b of our money effectively on infrastructure? Several government agencies and councils in NZ don’t even have a decent record in delivering smaller builds and IT implementation projects.

I do like the idea of capital gains exemptions on exit for people prepared to fund infrastructure under PPPS, but the amount fronted needs to reflect a 'meet in the middle' amount of future revenue that the Government is forgoing.

More concerning is NZ's inability to consent and deliver projects in rapid time-frames - look at the blow-out on the Waterview Connection. How long did that take from planning to first sod, and why were we so relaxed about it taking an extra few months to open? In any other country, there would have been formal inquiries.

Perhaps because we just don't trust our dear leaders? So we are very, very suspicious of change.

Can you blame us for the lack of trust, when wages in real terms have gone down for the last 18 years:

Why would a private institution invest in infrastructure- only if there is a big fat profit to be made. Why would a government pay a private company to make a big fat profit at taxpayers expense instead of just borrowing the money at 2.7% and building it themselves?

I guess it depends about how keen you are to beat your chest about staying under arbitrary budget cap rules and keep debt off the books.

Profit is the cost for efficiency and generally speaking we will get a better result. Governments need not worry about profits and, therefore, is never as efficient.

Profit is the cost of being unwilling to do it yourself.

Generally speaking we get terrible results. Private projects generally go over budget, over time, and are often unfit for purpose.

Excellent argument . Let us just abolish private enterprise altogether ; they are only in it for a profit. Whatever it is the govt will do it better .

Whenever someone talks about tax exemptions for their business of group etc my response is always the same - if it is good enough for you then it's good enough for everyone else. So in response to Mr. Whineray I think we should reduce the corporate tax to ideally 0%.

There are some very good reasons why that might be a most excellent idea. Why else is Google domiciled in Ireland? Speak English, established rule of law, friendly, well educated, hard working people, on an island with self sufficient electricity supply, just like us. The main danger seems to be that we attract high paying jobs and create a silicon valley highly stratified society.

Agree. Might pose the horrifying danger of encouraging investment in productive enterprise rather than just property, too.

It makes no difference whatsoever if the fund is taxed or not.

The cash received as tax simply allow the Crown to make larger contributions than it would.

There is a strong argument for keeping the company tax as is without exemptions.

I just don't follow his logic at all.

Shouldn't acronym have a "sic" beside it - I assume he means an anachronism - also odd to use it in the link for the piece.

That's my fault. He said "anachronism" & I've corrected it now. That'll teach me for writing stories at home on Saturdays...Cheers.

Well I for one appreciate new content going up on the weekends. :-)

Whew, I thought I read "acronym" this morning. Suspected I might be suffering early stage dementia as it made no sense at the time, or did I misread it? Glad to see it was there previously.

Comments like these coming out of the NZ Super Fund are all the more reason it should be shut down.

What he is saying the investors supply the Capital but all the risks are with the New Zealand Taxpayer.